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Tina Coates

September 13, 2010


Harper College – MGT. 111
Case Study – “Foundations of the Capitalist System”

1. Q: Do you see evidence that the moral, ethical and spiritual foundation of the

American democratic capitalist system is eroding?

A: Yes, there is much evidence that the moral, ethical and spiritual foundation of the

American democratic capitalistic system is eroding. According to our textbook, “the

United States has seen much corruption among businesspeople, such as the use of

prostitutes, illegal drug use, alcohol addiction and gambling” (Nickels McHugh McHugh

34).

Our textbook also cites, “One of the dangers of free markets is that some people

let greed dictate how they act” (40). Some ethical examples are summarized in our

textbook in Chapter 4 under the Legal Briefcase section:

• Enron: “Former Enron chairman and chief executive officer Kenneth Lay,

former CEO Jeffery Skilling and chief accounting officer Richard Causey

were convicted in 2006 of committing accounting fraud by setting up

partnerships that the company used to improperly enhance profits while

removing billions of dollars of debt off its balance sheet. That made the

company’s financial picture look better than it was and artificially inflated

the company’s stock and bond prices” (91).

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Tina Coates
September 13, 2010
Harper College – MGT. 111
Case Study – “Foundations of the Capitalist System”

• Tyco International: In a 2005 retrial, former Tyco CEO Dennis Kozlowski

and former chief financial officer Mark Schwartz were convicted of stealing $600

million from the global manufacturing company” (91).

“Some businesspeople have deceived the public about their products; others have

deceived stockholders about the value of their stock, all in order to increase executives’

personal assets” (40).

Q: How does that affect the ability of capitalist proponents to promote capitalism in

other countries such as China and India?

A: Pure capitalism alone is fading fast in today’s world. “The nations of the world

have largely been divided between those that followed the concepts of capitalism and

those that adopted the concepts of communism or socialism” (42). “The trend, then, has

been for mostly capitalist countries (like the United States) to move toward socialism

(government takeover of banks, more involvement of government in health care), and for

mostly socialist countries, such as France and China, to move toward capitalism (more

private businesses, lower taxes” (43).

John Gray, Professor at the London School of Economics, states: “In the end, the

answer to this question depends on how one conceives the good life. What a traditional

moralist views as family breakdown may be seen by a liberal as the exercise of personal

autonomy. For the liberal, personal choice is the most vital ingredient of a good life,

while conservatives may regard the preservation of valuable institutions to be more

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Tina Coates
September 13, 2010
Harper College – MGT. 111
Case Study – “Foundations of the Capitalist System”

important. With regard to contemporary Western societies, I tend to a liberal view. But

the important point is not so much which of these conceptions one adopts. Rather, it is

this: though free markets reward some moral traits, they also undermine others. If they

emancipate individual choice, they at the same time corrode some traditional virtues. One

cannot have everything. No economic system can enhance every aspect of moral

character. All rely to some extent on motives that are morally questionable. Greed and

envy may be vices, but they are also economic stimulants. An economic system is good

to the extent that it harnesses human imperfections in the service of human welfare. The

choice is not between abstract models, such as the free market and central planning. In

the real world of history, neither has ever existed in the form imagined by its advocates.

No, the true choice is between different mixes of markets and regulation, none of which

will ever be entirely morally benign in its effects. A sensible mix cannot be achieved by

applying an ideal model of how the economy should work. Different mixes will be best in

different historical contexts.” (John Gray, A Templeton Conversation: Does the free

market corrode moral character?)

If China and India can prosper without adopting the tenets of Capitalism, why

should they consider changing to another form of government? Robert Reich declares,

“Visit China today and you find the most dynamic capitalist nation in the world. In 2005,

it had the distinction of being the world’s fastest-growing major economy. So where are

the Chinese communists? They’re in government. The communist party is the only party

there is. China doesn’t have freedom of speech or freedom of the press. It doesn’t tolerate

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Tina Coates
September 13, 2010
Harper College – MGT. 111
Case Study – “Foundations of the Capitalist System”

dissent. Authorities can arrest and imprison people who threaten stability, as the party

defines it. Any group that dares to protest is treated brutally. There are no civil liberties,

no labor unions, no centers of political power outside the communist party.”

“China shows that when it comes to economics, the dividing line among the

world’s nations is no longer between communism and capitalism. Capitalism has won

hands down. The real dividing line is no longer economic. It’s political. And that divide

is between democracy and authoritarianism. China is a capitalist economy with an

authoritarian government.”

“Well, maybe we’ve been a bit naive. It’s true that democracy needs capitalism.

Try to come up with the name of a single democracy in the world that doesn’t have a

capitalist economy. For democracy to function there must be centers of power outside of

government. Capitalism decentralizes economic power, and thereby provides the private

ground in which democracy can take root.”

“But China shows that the reverse may not be true -- capitalism doesn’t need

democracy. Capitalism’s wide diffusion of economic power offers enough incentive for

investors to take risks with their money. But, as China shows, capitalism doesn’t

necessarily provide enough protection for individuals to take risks with their opinions.”

(Robert Reich, China: Capitalism Doesn’t Require Democracy)

Considering how America is viewed as a nation who has it’s fallen in moral,

ethical and spiritual foundation, why would other countries, such as China and India,
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Tina Coates
September 13, 2010
Harper College – MGT. 111
Case Study – “Foundations of the Capitalist System”

want to change their systems if they can prosper economically in the form of government

they now have? “Open markets in today's transforming global economy—with new

technologies and the rise of developing countries such as China and India—create both

new opportunities and new pressures on competitiveness and wages. This makes it even

more important that the U.S. political system rises to meet its challenges.” (Robert Rubin,

Newsweek, 12/29/09, How to Make Capitalism Work Again)

2. Q: Why is it so necessary to have a freely elected government for democratic

capitalism to create a prosperous and fair economy?

A: A freely elected government is important to democratic capitalism because if the

people feel that the system is not fair, they can elect new politicians to change the rules.

“Over time, voters in mostly free-market countries, such as the United States, have

elected officials who have adopted many social and environmental programs such as

Social Security, welfare, unemployment compensation and various clean air and water

acts” (42). For example, “Fiscal policy refers to the federal government’s efforts to keep

the economy stable by increasing or decreasing taxes or government spending… on such

things as highways, social programs, education, infrastructure, defense, etc. (49)”. If the

citizens do not like the way things are going, they have the freedom to replace the people

responsible for the actions (or lack thereof).

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Tina Coates
September 13, 2010
Harper College – MGT. 111
Case Study – “Foundations of the Capitalist System”

2. Q: Go through the three components of democratic capitalism and picture an

economy without each one. What happens to freedom, fairness and moral and ethical

behavior?

A: Democratic capitalism is a system based on three components: (1) free enterprise;

(2) a freely elected government that has internal checks and balances, and (3) moral,

ethical and spiritual values that are part of the very fabric of the country and business

system.

“Smith believed freedom was vital to the survival of any economy, especially the

freedom to own land or property and to keep the profits from working the land or running

the business. He believed people will work long and hard if they have incentives for

doing so – that is, if they know they’ll be rewarded. As a result of those efforts, the

economy would prosper, with plenty of food and all kinds of products available to

everyone” (33). If people did not reap a reward of some type for their hard work, they

would not be motivated to continue to work hard and make sacrifices. Furthermore, if

they had to be forced to produce for the country, only the strongest, smartest and most

manipulative people in that society would survive, leaving the weakest or less intelligent

to not be required to work as hard as the others, which would lead to rebellion and

discontent, thus provoking ill mannered behavior and the potential for war within and

abroad.

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Tina Coates
September 13, 2010
Harper College – MGT. 111
Case Study – “Foundations of the Capitalist System”

Without a freely elected government that has internal checks and balances, the

citizens would revolt against a system that was unfair; the government could make risky

decisions that could adversely affect the citizens’ well-being, and then the people would

become savage, resulting to whatever means necessary to survive and thrive.

Without moral, ethical and spiritual values, citizens that prospered would not

want to reach out and lend an “invisible hand”. Greed would lead company executives to

steal, thus bankrupting the investors and employees that helped the company to succeed,

thus causing more dependency on the government for assistance and sustenance. Other

companies and countries would not want to conduct business with us because of a lack of

trust or bad reputation, thus resulting in problems with importing and exporting goods.

Q: Which part of the system is weakest today?

A: I believe that the weakest part of the system today is the government’s “internal

checks and balances”. It seems that politicians today are out to satisfy the needs of their

own agendas and not concerned about the needs of the people. The government argues so

much within the infrastructure that it cannot get anything accomplished.

Q: What can be done about it?

A: We must educate our citizens about the issues that plague our country and provide

solutions to our politicians that our government has not attempted to implement. If our

elected officials cannot accomplish things like reducing the deficit, providing jobs to the

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Tina Coates
September 13, 2010
Harper College – MGT. 111
Case Study – “Foundations of the Capitalist System”

unemployed, giving incentives and assistance to people that desire to own businesses; if

they cannot take their eyes off of themselves and their agendas for a single minute to look

at the real needs of the country and population, then those politicians must be removed

from office. Education is the key to reform; but without money, power and influence,

how can the message be transmitted? Who has the guts to take a stand? Will that still

small voice in the wilderness be heard?

Works Cited

• Nickels, William. McHugh, William. McHugh, Susan. “Understanding

Business”. Print.

• Rubin, Robert. “Getting the Economy Back on Track.” Newsweek, 29 Dec 2009.

Web.

• Gray, John. “A Templeton Conversation: Does the free market corrode moral

character?” Online at www.templeton.org/market. Autumn 2008. Web.

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